Frequently Asked Questions (FAQ) about concentrated liquidity
By concentrating liquidity into specific ranges, the liquidity provider can earn more fees. Traders experience less slippage on trades in concentrated liquidity markets.
Concentrated liquidity can also amplify the effects of price changes, called impermanent loss. Concentrated liquidity requires users to be extremely vigilant or rely upon a concentrated liquidity manager for providing liquidity.
Rarely. Concentrated liquidity pools vary in their asset ratios. The asset pair can swing from 100-0 to 0-100, sometimes aggressively. Users must understand that before entering Gamma's vaults, they must deposit at the current pair ratio. Users will also withdraw at the current pair ratios.
Concentrated liquidity management is a pretty tough space to be in. There are serious technical and operational challenges.
Developing comprehensive strategies where fees exceed impermanent loss over various timescales has been a major challenge. These strategies must work in bull markets, bear markets, and stagnation. They also have to work with stable-stable, stable-volatile, and volatile-volatile pairs.
Communicating the success or failure of those strategies through statistics and analytics has also been challenging. There are a variety of ways to define success for a liquidity provider.